US indexes were trading at session lows on Thursday afternoon, with the Dow and the Nasdaq posting triple-digit point declines, as investors fretted over escalating tensions between the United States and North Korea.
However, Federal Reserve Bank of New York President William Dudley suggested on Thursday that the central bank was on track to raise interest rates once more as he expects sluggish inflation to rise over the next several months.
Many world stock markets have hit record or multi-year highs in recent weeks, leaving them vulnerable to a selloff, and the tensions over North Korea proved to be the trigger.
South Korea's stocks and currency fell after President Donald Trump warned North Korea that if it "does anything" to the USA or its allies "things will happen to them like they never thought possible".
He said it is "a bullish sign that the equity markets are rebounding somewhat on a Friday, in spite of the fact that investors will need to wait for two days to react to any geopolitical news that comes out over the weekend".
The Dow Jones Industrial Average fell 163 points, or 0.74%, to 21,886, the S&P 500 lost 31 points, or 1.23%, to 2,443 and the Nasdaq Composite dropped 117 points, or 1.84%, to 6,236.
Additionally, China weighed in on the standoff, saying in an editorial in state-run Global Times (http://www.globaltimes.cn/content/1060791.shtml) that Beijing will intervene if the US strikes first against North Korea.
Reuters data show a 22 percent perceived chance for a rate hike after the Fed's December meeting.
However, the S&P was still not far off record levels.
Emerging market stocks lost 1.20 percent.
Eight of the 11 major S&P sectors were lower, with the consumer discretionary index's 0.59 per cent fall leading the decliners. Germany's DAX was up 0.1 percent, while France's CAC 40 fell 1.1 percent. The Japanese currency last traded at 109.07 yen to the dollar, compared to levels around the 110 handle seen earlier in the week. MSCI's broadest index of Asia-Pacific shares outside Japan closed 1.37 percent lower. The yield on the 10-year Treasury note rose to 2.22 percent from 2.20 percent late Thursday. Hong Kong's Hang Seng was off 0.3 percent.
The dollar was further weighed on Friday by the soft USA inflation data.
Biotechnology stocks are turning in some of the market's worst performances in morning trading, resulting in a 1.6 percent drop by the NYSE Arca Biotechnology Index.
Ongoing global glut concerns lingered in oil markets despite a bigger-than-expected draw in USA crude inventories, leaving prices volatile.
Gold - generally regarded as a safer asset in times of uncertainty - hit its highest price for more than two months on Friday, touching $1,288.97 an ounce at one point. US gold futures gained 0.50 percent to $1,296.60 an ounce. Brent crude edged down by 0.13 percent to trade at $51.82 a barrel and US crude shed 0.06 percent to trade at $48.56.